By Joe Kelly | Courthouse News
A federal judge on Friday blocked the U.S. Small Business Administration from denying federal coronavirus relief loans to multiple Wisconsin strip clubs based on their businesses’ sexual nature, ordering the government agency to start facilitating the emergency loans by Monday.
U.S. District Judge Lynn Adelman’s 33-page decision stops the Small Business Administration from denying the clubs loans applied for under the Paycheck Protection Program, a component of the $2.2 trillion CARES Act rolled out by the federal government in late March getting businesses fixed up with loans to help them pay employees throughout closures caused by the Covid-19 pandemic.
The SBA originally denied the clubs’ loan applications under a 1996 regulation stating that businesses that “present live performances of a prurient sexual nature” are not eligible to take part in SBA loan programs.
The owners of three Milwaukee clubs and one Middleton club all operating as Silk Exotic Gentlemen’s Club first sued on April 13 before the owner of The Vegas Gentlemen’s Club in Darien filed a lawsuit eight days later.
The clubs claimed the SBA violated their free speech rights when it boxed them out of emergency loans they need to keep their nonessential businesses afloat in light of state and federal public health directives closing their doors, singling them out among the tens of millions of small businesses in the U.S. that have applied for the loans.
The SBA’s press director did not immediately return a phone call for comment to Adelman’s ruling Friday.
As of now, an extension to Wisconsin’s safer-at-home order extends until Memorial Day weekend, but on May 5, the state high court will hear arguments in a lawsuit from the GOP-controlled Wisconsin Legislature seeking to block the extension and force Democratic Governor Tony Evers and state health chiefs to write new rules the Legislature will have to approve.
Adelman, a Bill Clinton appointee, consolidated the clubs’ cases and issued a temporary injunction via oral ruling on April 23 in anticipation of Friday’s preliminary injunction.
The judge did not buy the federal government’s vague assertion that it enacted the rule denying loans to businesses of a prurient sexual nature in the public interest and due to limited resources, and found that the strip clubs were just as entitled to emergency relief as any other small business forced to shut down due to the global coronavirus pandemic.
“Thus, the broad purposes of both the CARES Act and the Small Business Act would be served by allowing the plaintiffs to participate in the program on the same terms as any other small business,” Adelman wrote. “Moreover, neither the CARES Act nor the Small Business Act creates classifications of small businesses or deems certain forms of small businesses to be less deserving of the government’s ‘limited resources’ than others.”
Adelman ultimately found that the clubs would have a likelihood of success proving the SBA regulation violates the First Amendment and the equal protection clause of the Fifth Amendment and considered the government’s arguments for excluding the clubs from relief due to the non-obscene sexual nature of their nude and semi-nude shows to be weak.
Adelman wrote that “the obvious flaw in the government’s reasoning is that it has chosen to remove the Covid-19 obstacle from the path of nearly every other small business in the United States. In leaving the obstacle in the plaintiffs’ path, the government has singled them out for unfavorable treatment based solely on the content of their speech.”
“Thus, the Constitution does not permit the SBA to exclude the plaintiffs from the PPP based on the content of their speech,” the judge declared.
Nicholas Watt, counsel for The Vegas Gentlemen’s Club with Madison firm Kramer, Elkins & Watt, said Friday that “we believe [Adelman] got it right and we’re very pleased,” before declining to speak further on the matter.
Jeff Scott Olson, an attorney whose namesake Madison firm represented the Silk Exotic Gentlemen’s Clubs, could not be reached for comment Friday evening.
Adelman’s order gives Carranza and Mnuchin until noon on May 4 to give the clubs’ lenders the guarantee authority to process their PPP applications and immediately fund the loans.